World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Between the SEC charges and the congressional panels, the government is finally doing its job going after Goldman Sachs, right? And this last week in April ends with the Justice Department picking up the baton, which puts Goldman under threat of criminal prosecution. Things have suddenly gotten serious.

Two weeks ago on a radio interview, I suggested the SEC investigation will either be a chump charge to pacify the masses or it might potentially be the beginning of the sacrifice of Goldman Sachs for reasons explained below. The Justice Department referral makes the latter more probable.

Criminal prosecution is indeed appropriate. Goldman deserves to be broken up. In fact, all banks of that size need to be broken up so that power is passed down to state and local economies, and countries are no longer held hostage by the mega firms. Is that what is happening here? Are we being saved from the financial parasites that have destroyed our economy?

Childlike Perspective: Left vs. Right

The left thinks so. The major media establishment is suddenly, as if by script, trumpeting the idea that government is cracking down on boogie man Goldman Sachs. This view says, “Yey! Our good government servants that have our best interests at heart are fixing those greedy Wall Street parasites.” That’s the entire purpose of the congressional panels—a stageshow for the Wall-Street-funded media to promote this narrative. But those very same government officials were the ones who did what Goldman Sachs representatives and the real powers behind Wall Street told them for the last 20+ years. They still get all of their money from Wall Street. Have they suddenly turned on the very people who feed them? Of course not.

The right thinks this crackdown is bad because Wall Street and Goldman represent a benevolent free market. This view goes beyond childlikeness and approaches insanity, like Goldman CEO Lloyd Blankfein thinking of himself as an angel from God. Wall Street, the Fed cartel, is a government creation. There is nothing “free market” about it. It is the most powerful monopolized cartel in the history of the world. Conservative media mouthpieces who trumpet Wall Street do not have a clue about our monetary system. They have never looked beyond the false religion of neoclassical economics, which conveniently ignores the issue of money.

Conclusion: rule out the simplistic view of the left and right. The Washington DC government has served Wall Street and big business for decades. There is no divide between big government and big business. They go hand in hand. Neither could exist without the other.

Adolescent Perspective: “They’re All Criminals”

Another group of people, far more accurate than the left vs. right disciples, think that Wall Street is just a predatory bunch. Bringing down Goldman Sachs would therefore be a good thing in their view. But they think DC government is a predatory bunch as well. They see through the salesmanship and PR pumped through the corporate media. They understand that frat boy behavior creates a self-serving clique whether on Wall Street or in Washington DC. In fact, they understand how the boys in both groups get their power from working together. It is all one club.

Conclusion: as correct as this view is, it leaves us paralyzed. Adolescents are brilliant at seeing through adult facades, but they may fail to see the higher level picture.

The Godfather: Who the Criminals Work For

The key to what is really happening is to understand that the suits we see on television are not in charge. A bunch of random self-serving people would not be able to pull off strategic, coordinated plans—the adolescent view is only half correct. There are people far above the pay grade of a senator like Chris Dodd or a wage servant like Lloyd Blankfein. He may be the top operating officer at Goldman, but by definition that means he is a servant of the ownership class—the Anglo mafia—that controls all money in the system. The fact that he earns a wage and gets a W2 at the end of the year means he and his firm are not in charge.

Goldman Sachs is effectively a capo regime. It is a powerful player in a game of controlled chaos. It was given a territory and was then expected to deliver the goods. And Goldman delivered better than all the other capos in the system. It reaped the rewards. Goldman’s officers were paid better than any other regime throughout the last several decades. Its hit men were the most productive. The most loyal—Rubin, Paulson, etc—have been inducted into the upper level circle around the Godfather and removed from the stressful street jobs that bring public scrutiny. Those guys made their hundreds of millions and no longer care whether Goldman exists or not. And from the Godfather’s perspective, there comes a time when capos have served their purpose. At that point, their life is in danger.

“The Game of the Century:” Bobby Fischer and the Queen Sacrifice

But capos typically are not sacrificed unless doing so would serve a Machiavellian purpose. So what would be the purpose of sacrificing Goldman? Well, in one of the more famous games in chess history, 13-year-old Bobby Fischer brilliantly pounced on his opponent and guaranteed victory by boldly sacrificing his queen on move 17. The queen is the most powerful chess piece. Average people would narrowly play a game defensively protecting their queen and assuming any chance to take your queen would lead to victory. But that elementary view would be precisely the weakness upon which a true chess mind, a Godfather, would prey. Beware of the bait being laid in front of you.

Goldman Sachs is very much analogous to a queen in the chess game being played by the ownership class—the richest pools of private capital controlled by multi-generational wealthy families that hover above countries via the central banking system. It has been one of the most potent pieces on the board for many years, its most recent attack being on the entire nation of Greece. But as the endgame comes into view, perhaps the most brilliant play to reach checkmate is now the queen sacrifice. Goldman employees had better be sending their resumes to JP Morgan Chase—a critical chess piece in the endgame that will be protected at all costs.

The Great Global Restructuring

What is the end game? The ownership class is attempting to restructure the world under a new financial system. We have had a global currency for a long time—the US dollar—but it has run its course. Wall Street has leveraged up the dollar as far as possible. The dollar now holds most nations hostage thanks to the power of the bond market, the central banking system. The ownership class needs a new debt-based currency and banking structure to maintain control as they pump the capital engine through the 21st century. This is why the G20 is working feverishly to build up the IMF, BIS, and new global financial rules. This time the production center will be China rather than the US, which is why China and Japan are the most asset-rich countries in the world while the western world is the most indebted. The west is on track for decades of slow decline while Asia is on the verge of seeing “the rising sun.”

So unfortunately the government vs. Goldman Sachs story has nothing to do with reforming Wall Street in the interest of average Americans. Rather it is a strategic move to further the endgame of consolidating Wall Street power, focusing public rage on Goldman to protect JP Morgan Chase, fueling new regulations to clamp down on the smaller banks that we so desperately need, and creating a global structure even bigger than the already “too big to fail” banking system. This may be setting up one of the biggest, most successful queen sacrifices in history. We should take the queen by all means—Goldman is a predator. But heed the lesson from 13-year-old Bobby Fischer. Be wary of checkmate.

Equity futures are down just a little this morning, but are picking up momentum on the downside. In a switch, the dollar is down, bonds are up, oil is higher, and gold is gunning for its old highs. Gold is breaking out of yet another small consolidation and is at 1,178 an ounce. The prior high is at $1,227, not that far away, it would appear destined to go higher.

The big release this morning is the first stab at first quarter GDP. The headline number fell from Q4’s final reading of 5.6% to 3.2%. Expectations were for 3.4%, so this is a miss. Keep in mind that this 3.2% figure is an annualized quarterly figure, the growth in the quarter was therefore measured to be .8%. Also expect downward revisions to come. Here’s Econoday’s analysis:

HighlightsThis morning we got an update on how the recovery is faring for the overall economy with the initial estimate for first quarter GDP. Even though growth in output (overall GDP) slowed from the fourth quarter, the big news is that the domestic final demand component picked up significantly. Real GDP growth for the first quarter came in at an annualized 3.2 percent, following a fourth quarter surge of 5.6 percent. Analysts had expected a first quarter gain of 3.4 percent.

While the inventory component was the driver behind fourth quarter growth, we got help in the first quarter from consumers and business investment (equipment purchases) as real final sales to domestic purchasers rose an improved 2.2 percent in the first quarter after an anemic 1.4 percent rise the period before. Although inventories rose, the "swing" in inventories was less positive than the drop in destocking the fourth quarter. Yes, sharply less negative adds more to GDP than slightly more positive-the "swing" is what matters. Net exports, however, worsened on a slowing in exports and continued increase in imports.

Inflation is still soft as the GDP price index rose an annualized 0.9 percent, following a 0.5 percent increase in the fourth quarter. The latest number essentially matched the consensus forecast for a 1.0 percent increase in the overall price index.

Although overall growth slowed in the first quarter, the composition shifted to a stronger position in terms of domestic demand. The change is gradual but in the right direction. Equity futures slipped on the release.

My take is that our GDP does not reflect reality at all. I believe that the deflator numbers do not reflect reality and that a great deal of our nation’s “productivity” (measured in dollars) is simply paper fluff engineered by our criminal financial industry using false accounting. Enron times a million.

Yes, it’s time for a do-over! Freedom’s Vision would do it.

For those who are into the details, here’s the entire GDP report from the BEA:

The Employment Cost Index rose .6% in the past quarter (1.7% year over year), which is greater than the forecast for a quarterly rise of .4%. The rise is mostly due to higher benefit costs. The difference in the rate of WAGE growth to the rate of growth in other costs, and in particular DEBT, is a guarantee for running into the inability to service the debt – debt saturation eventually occurs, it’s just math.

HighlightsA jump in benefit costs fed a surprising jump in the employment cost index that is definitely not wanted by policy makers. The ECI rose a quarter-to-quarter 0.6 percent in the first quarter for the highest rate of the recovery and compared with a 0.4 percent rise in the fourth quarter. The year-on-year rate rose to 1.7 percent, 2 tenths above the fourth-quarter pace.

Benefit costs jumped 1.1 percent in the first quarter more than doubling the fourth quarter's 0.5 percent rate. The year-on-year rate for benefit costs is at plus 2.2 percent, the highest rate since second-quarter 2007 and far above the prior quarter's plus 1.5 percent rate. Questions over how the implementation of healthcare reform will play out adds special uncertainty to the outlook for benefit costs.

Wages & salaries remain tame at plus 0.4 percent, down 1 tenth in the first quarter in the only headline that Federal Reserve officials will welcome. The year-on-year rate for this reading is unchanged at plus 1.5 percent.

A base effect is at play in this report as the fourth quarter marked a deep low for this series. But the gains can't be ignored and will raise doubts over how extended the Fed's zero-rate policy will prove to be.

Well, let’s see… how did holding rates too low for too long work out last time? What’s the definition of insanity? What one has to keep in mind is that the Fed does not work for the people of the United States. They work for the Central Banks. Once you understand WHO they are working for, then it all makes perfect sense. This is why WHO controls the money is so important and why the “FED” must be disbanded.

It would seem that someone else is finally starting to wake up – for what reason and motive is not clear, I don’t take anything at face value anymore. All I know is that Goldman stock just cratered $10 a share this morning as this was released:

The Securities and Exchange Committee referred its investigation of Goldman to The Justice Department for possible criminal prosecution, according to several media reports, including one by the Wall Street Journal, Thursday night. The reports cited sources familiar with the situation.

Goldman has been accused by Levin's committee of betting aggressively against the nation's housing market, making as much as $3.7 billion in the process.

Documents released by the committee this week also demonstrated that Goldman may have been engaging in other questionable practices.

Goldman has maintained that it too got hit when the U.S. housing market collapsed, losing some $1.2 billion in 2007 and 2008. It has also rejected charges that it bet against American homeowners or against its own clients.

Rather, the company has maintained it merely was trying to insulate itself from other large bets it made on residential real estate.

"We didn't have a massive short against the housing market and we certainly did not bet against our clients," said Blankfein at the hearing Tuesday.

Fabrice Tourre, the 31-year-old French trader who allegedly helped broker the investment deal that is the subject of the SEC's civil lawsuit, also appeared Tuesday. He said he planned to fight the charges brought by the federal government.

Goldman has placed the London-based Tourre on paid leave indefinitely and stripped him of some of his credentials with British regulators, however.

Goldman has absolutely committed securities fraud. All that’s required to commit fraud is to materially misrepresent your product or to fail to disclose meaningful positions. Goldman is not the only Investment bank guilty of this fraud, they are all guilty of it. That leaves one to wonder why the SEC is taking action now… it feels like public manipulation to me and I’m certain the real motivations are more complex. The market is going to have a difficult time gaining ground with Goldman shares plummeting.

The Chicago PMI was just released at 63.8, a reading of 60 was expected.

The Greek debt crisis gets “solved” just about every day. And every day it seems the amount of money needed balloons:

April 30 (Bloomberg) -- Greek Prime Minister George Papandreou said the nation’s survival was at stake in talks to win a potential $159 billion European Union-led bailout that included budget cuts denounced by unions as “savage.”

“Now, today, immediately, what is at stake is the survival of the nation,” Papandreou said in parliament in Athens today. “This is the ‘red line.’” He said talks with the EU and International Monetary Fund were “tough,” with his government resisting “not in the street with rocks, but in negotiations.”

Oh sure, piling an additional $14,500 for every man, woman, and child of Greece’s 11 million people will surely make the current unserviceable debt all better, won’t it? What a joke! The people rising up? They absolutely should be.

The same exact thing IS happening here. Only ours is more stealth due to our ability to devalue our dollar. That game, however, is getting more difficult for us by the day as well. As soon as the “austerity” measures begin to set in, even the fluffed up false GDP growth will turn negative again. The real desperate acts will come as we fall during the next cycle.

Yesterday’s ramp job peaked out at the 78.6% retrace level. The VIX did generate a market buy signal by closing inside of the upper Bollinger band.

Remember, this signal is a leading signal and it is very reliable. You can see that the Bollingers are now spread wide, I would not look for another VIX signal for quite some time. That said, events can always override technical indications, if Goldman breaks beneath $148 a share, for example, the market will have a difficult time making progress. Tops are a process, they take time.

As I type, Goldman shares just landed on the $148 level. A break beneath $148 will find limited support at $140, but then there’s really nothing all the way back down to $100. That would not be particularly helpful to the XLF or to the broader market:

Couldn’t happen to a nicer group of guys, I’m sure a lot of this theatre is playing off that sentiment. Sure, there are a lot of good songs I could choose to pile on top of Goldman, they certainly deserve it. Instead of that, though, here’s one for the masses who believe in the growth story propagated by all the central bankers, our administration, the BEA, and our media…

Thursday, April 29, 2010

Equity futures are higher this morning, now retracing roughly half of the losses incurred early this week. Below is a 5 minute chart of DOW futures on the left showing the overnight action, and a 15 minute chart of the S&P on the right. Both appear to be making a rising wedge which is normally bearish, however, the pattern is still young and has not been created on the cash charts as of yet:

The dollar is lower, bonds are higher, oil is significantly higher, and gold is down slightly while it digests recent gains.

Goldman’s bounce continues off the $150 level for now, I think what happens there will impact the XLF and the entire market.

Financial reform is now progressing, there’s really no point in commenting until we hear what it contains. That said, there is a lot of talk about including a no bail out provision. Of course that’s the right thing to do, however it is the type of constraint that shows how the mood will be different on the next leg lower when it occurs. Remember, the banks are still insolvent, their “assets” as underwater as the city of Atlantis.

Weekly jobless claims fell by 8,000 to 448,000, a level which is still extremely elevated. Here’s Econoday:

HighlightsInitial jobless claims fell in the April 24 week to 448,000 vs. 459,000 in the prior week, which is revised 3,000 higher. The four-week average is up 1,500 to 462,500 and compares negatively with 448,000 at the end of March.

Continuing claims are down 18,000 to 4.645 million in data for the April 17 week. The four-week average here compares favorably with month-end March but only slightly, at 4.639 million vs. 4.651 million. But a month-end to month-end comparison of the unemployment rate for insured workers shows a 1 tenth uptick, at 3.6 percent vs. 3.5 percent.

Today's report is not overwhelmingly positive but does show improvement in what counts most -- the latest weeks. Early expectations are calling for a solid gain in April payrolls but roughly the same size gain as in March which came in at 162,000. The stock market slipped very slightly following today's report.

From the Department of Labor’s release, “States reported 5,200,473 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending April 10, a decrease of 146,641 from the prior week. There were 2,286,186 claimants in the comparable week in 2009.”

That’s roughly 3 million more people on emergency unemployment this year over the same timeframe last year.

The first manipulated stab at quarter 1 GDP will be released tomorrow, can’t wait! The crowd is guessing 3.4%, I believe that true GDP is still negative, remove false accounting practices, calculate true inflation, and mark financial “assets” to market and GDP would fall tremendously. Enron times a million, and just because the whole world’s in on it doesn’t mean the ending is going to be any different.

On the opening bell the VIX fell beneath the upper Bollinger band. Should it close beneath it will have produced a market buy signal. Again, these signals are usually very reliable. For this signal to be triggered, it must be on a closing basis. Below is a 3 month chart of the VIX, note the broadening Bollingers:

Below is a daily chart of the dollar. Note how the 82 level neatly closes off the gap area I highlighted months ago in red. The 82.20 level is key here, a rise above is bullish for the dollar and bad for equities. A drop below probably means we have more to come on the upside with equities and that would correspond with a buy signal on the VIX should it occur.

Hey, the bank’s toxic paper is still so far underwater I’m surprised John Paulson didn’t moniker his CDO fund “Atlantis.”

Wednesday, April 28, 2010

Equity futures are higher this morning following yesterday’s tumult. The SPX gave up 2.3% on the day and overnight the Nikkei Index lost 287 points or 2.6% in sympathy. The dollar and bonds are slightly lower this morning, the Euro is up slightly after making new lows yesterday, oil is up a little and gold is down a little.

The action in gold yesterday was interesting as it moved up strongly in opposition to the market. That’s an important clue for what to expect as it becomes more clear that indeed sovereign risk is for real and it’s not just a Greek problem – it’s a global problem.

According to Bloomberg:

The yield on two-year Greek notes surged to more than 23 percent today, and the nation’s securities regulator imposed a two-month ban on short sales on the Athens stock exchange.

The euro gained today after the Financial Times reported the International Monetary Fund may increase its financial assistance in the first year to Greece by 10 billion euros from the current 15 billion euros, citing unidentified bankers and officials in Washington. The currency was trading at $1.3195 at 12:45 p.m. in Tokyo, having earlier traded at $1.3145, the lowest since April 29, 2009.

Got to love those unidentified bankers, and when all else fails ban short selling, yeah that'll work... not! The bankers don't care about any "risk," they are certainly willing to print up an instrument of debt and skim from the people’s productive efforts – austerity, that’s for other people.

The worthless MBA Purchase Index produced yet another wild swing, gaining 7.4% on the week. The refinance index, however, lost 8.8%! The composite index lost 2.9%. I don’t even know why I waste my time with this report, somebody please make it stop! Econoday plays right along, gee, no mention of the weather?

HighlightsThe approaching end to second-round stimulus is giving a big lift to housing demand as the Mortgage Bankers Association's purchase index jumped for a second week, up 7.4 percent in the April 23 week. But the outlook after the latest stimulus expires at month-end is in serious question. This report two weeks from now will likely offer the first indication of how deeply stimulus pulled sales forward. MBA reports a disproportionate share of government purchase applications which rose 11.9 percent in the latest week vs. a 3.5 percent rise for conventional purchases.

If it weren't for sovereign-debt issues now pulling U.S. rates lower, the prospect of high mortgage rates was a central risk to future housing demand. Rates did rise in the week, up 4 basis points on 30-year loans to 5.08 percent, but rates are very likely to move lower in the next report given ongoing sharp declines in long Treasury yields. Lower rates should help the refinance index which however fell 8.8 percent in the latest reporting week. The fall in the refinance index offset the rise in the purchase index, making for a 2.9 percent decrease in the composite index.

Of course the FOMC meeting announcement will occur at 2:15 Eastern this morning, boy, can’t you just wait to hear what these geniuses have to say? I’m still waiting for Bernanke to utter the words “debt saturation” which he actually came pretty close to yesterday. In fact, he came pretty close to saying that there’s no more room for deficit spending, and doesn’t that fly in the face of his entire prevent depression thesis?

Here’s a thesis for you – central bankers and their debt backed money schemes are the CAUSE of credit bubbles and depressions. Let’s see whose thesis wins out over time.

Yesterday’s move in the markets produced a bunch of technical damage, most of the current uptrend lines were broken, but not all. McHugh’s current short term count shows that we may need one more wave higher, but I’m not so certain that we’ll get it. This descent had a different flavor to it, it was very strong, a 95% down day on much heavier volume and it was not just based on one concern, it was based on several.

It is quite typical that following a 90% plus move that some correction or sideways action occur to digest that move.

Note that the selloff occurred the day following an all time record high number of new highs. Here’s the resultant chart of new highs, according to the WSJ new highs fell to 191, that’s a huge drop from 674:

The other technical indicator to watch is the VIX which gained more than 30% yesterday, leaping over the 50dma and even bounding over the 200dma to close miles outside of the upper Bollinger band:

The close outside of the upper Bollinger sets up a market buy signal that will be triggered once the VIX returns to inside of the normal range. That may happen quickly or it may take a few days depending on the market direction from here. Once triggered, the coming market buy signal may indicate that a wave 2 bounce is coming. Remember, these VIX signals usually lead by a few days or even a week or two, but they are highly reliable. Keep in mind that this is a future event we’re talking about, it’s quite possible that there is much selling between here and there – if I had to guess, this was not a one day wonder and may be the start of a larger correction. If that read is correct, we should resume selling with the VIX remaining above the upper Bollinger for perhaps a few days – we’ll see, we really need a little more on the downside here to break the uptrend lines on indices like the RUT.

Many of the indices, including the NDX, produced new bearish targets on their respective Point & Figure charts. The VIX produced a new bullish target of 36. The 30% move yesterday certainly made options instantly more expensive, removing good entry points for retail "investors" (gamblers) to get positioned:

For now Goldman is higher having bounced off the $150 level. There is strong support for their stock just beneath that range, however, should it break beneath there it may prove to be quite damaging for them.

From my perspective DEBT continues to rattle the world, one event after the other. This will not stop, it will continue to get worse until we either change WHO controls our money and how it is backed by debt, OR we rush headlong into other nasty events that history says is coming if we’re not smart enough to remove the central bankers from power. Don’t buy the bullshit, the world’s problems are not caused by unions, illegal immigrants, or any other such nonsense. They are caused because We The People have failed to uphold the rule of law and demand that our representatives take back control of our money as the Constitution, the basis for law in this country, demands.

Did you see the Goldman billionaires slither like the snakes in the grass they are? No apologies forthcoming from the snakes. Lord Blankfein is up today, more fun in the theatre of the absurd.

Tuesday, April 27, 2010

Richard Koo, Chief Economist, Nomura Research Institute describes what he calls “Balance Sheet Recession.” He struggles for a term for it, but what he describes is exactly what I call “Debt Saturation.”

His discussion is good because it shows the dilemma and cycle created by deficit spending - deficits increase until they are no longer tolerated, financial reform comes in and that causes yet another contraction because balance sheets (debt saturation) have not been repaired.

This is why financial reform will fail – because you are saturated with debt, financial reform causes another contraction. Where Mr. Koo misses the boat in discussing Keynes is that the root cause of this dilemma is our monetary system – it is what sets up the need for fiscal stimulus and is the root of that cycle. We will not escape the problems created with debt cycles until we fix our underlying monetary system. (ht Kevin)

“Americans can always be counted on to do the right thing… after they have exhausted all other possibilities.”

-Winston Churchill

There is no doubt that financial reform is needed – badly. But any financial reform, meaningful or otherwise, is destined to fail by itself because it is NOT the root of our financial problems.

In fact, the math of our economy is so far gone at this point that meaningful financial reform will probably do more harm than good. This is because all our money is debt and our system requires never ending growth or failures will occur. Tighten the reigns now on financial growth, debt contracts, our money contracts, and recession sets back in making the long term math even worse. It’s an impossible math situation rooted not in the financial system, but in our monetary system.

It is because of our monetary system that we are damned if we do, and we are damned if we don’t.

All money is debt. Without debt there would be no money. It’s an insane system, quite literally nuts, for it ignores the reality of math. If I stood in front of you holding 4 rocks in my hands and insisted that I held 6, you would call me nuts, wouldn’t you? Thus the term, “economic mass psychosis” is completely apropos.

Below is a chart showing the diminishing productivity of debt over time. Financial reform will not change this chart:

Ask yourself this… what will financial reform accomplish in regards to our national debt, to the bad math of Social Security or to Medicare? Nothing, that’s what. And constricting or confining the financial industry will not help the short run, nor will it help the long run UNLESS it is accomplished in conjunction with monetary reform and political reform that works to separate special interest money from politics. Short of that there is nothing but problems facing our future.

Would financial reform help Greece out of their debt problem? No? Why would anyone think it would help us out of ours? Your attention is being diverted AGAIN, they are attempting to take your eye off the ball. The ball is DEBT and the way in which private banks control the production of money - because they control the money, they control us.

The single most important reform is producing our own sovereign money. That is money that is spent into being without obligating the people of America to pay interest on their own money system to private banks – a ridiculous notion under which we have all lived our entire lives. The expense of such folly is now growing exponentially and will continue to be an anchor around our futures until we set our monetary and political systems straight - we must return control of money production to Congress where it belongs.

To see and understand a system that can work, please visit SwarmUSA.com and read up on the provisions of Freedom’s Vision. Yes, financial reform is needed, but to be successful it MUST be accomplished along with monetary reform or the long term problems will remain.

Equity futures are lower this morning with the SPX approaching a support area right around the 1,200 level. The dollar is higher, bonds are up significantly, both oil and gold are down a little.

Case-Schiller reported that home prices gained .6% yoy in the month of February compared to a consensus rise of 1.3%. It was the first year over year price gain in two and a half years.

April 27 (Bloomberg) -- Home prices in 20 U.S. cities rose less than forecast in February from a year earlier, a sign a housing recovery will take time to develop.

The S&P/Case-Shiller home-price index of property values in 20 cities increased 0.6 percent from February 2009, the first gain since December 2006, the group said today in New York. The median forecast of economists surveyed by Bloomberg News projected a 1.3 percent advance.

Home prices in February were 30 percent below the peak reached in July 2006, indicating the industry that helped trigger the worst recession since the 1930s will take years to recover lost ground. A pickup in employment is needed to help stem the damage from mounting foreclosures that are restraining further gains in property values.

“The sharp drop in home prices has ended,” Michelle Meyer, a senior economist at Barclays Capital Inc. in New York, said before the report. “We believe that prices are bouncing around the bottom and see little upside potential over the next few years. There is an alarmingly large foreclosure pipeline.”

Stock-index futures held earlier losses following the report on growing concern over Greece’s debt crisis. The contract on the Standard & Poor’s 500 index fell 0.5 percent to 1,202.2 at 9:03 a.m. in New York.

I think the buyers incentives directly added to the price of homes, artificially of course. As the wave of option-ARM loans hits in the next year we should see some resumption of home price declines, especially in the upper end.

Citizen Confidence numbers are released at 10 Eastern this morning.

I was reading the Puget Sound Business Journal yesterday when a blatant example of stock manipulation jumped off the page at me:

Shares of Frontier Financial Corp., of Everett, soared nearly 96 percent in trading Monday, pushing the stock to more than $7 a share at one time before closing at $5.84 and perplexing bank executives and analysts.

On an online trading message board for the bank, rumors circulated that Frontier will be seized by government regulators this Friday, fueling the theory that short sellers are betting against Frontier’s survival. Banks are typically taken over by the government on Friday.

More than 23 million shares of stock traded on Monday. There are less than 5 million outstanding Frontier (NASDAQ: FTBK) shares and on a typical day, only about 200,000 shares trade. Frontier Financial is the holding company for Frontier Bank.

Sara Hasan, an analyst with Seattle-based brokerage McAdams Wright Ragen, said it’s possible short sellers are betting against the bank’s stock. Another possibility is that the surge is caused by what’s known as a “program trade,” when a fund purchases a chunk of the stock without much research, Hasan said.

“I have no idea what’s driving it,” Hasan said.

Frontier Financial chief executive Pat Fahey said he was perplexed Monday. He said the company has not announced any news — and has no plans to do so. The NASDAQ stock exchange also called the bank asking about the stock movement, he said.

He said that any trading based on a takeover by government regulators would be “pure speculation.”

“That’s been going on for a year — what’s new about that?” he said regarding rumors about the bank’s health.

Great example of a lawless market, no police, no worry about being jailed for manipulating stock price, something that’s pretty easy to do with a small company. It would probably take the SEC all of 5 minutes to find out who was behind something like this, but nothing will happen, no enforcement of the rule of law.

Meanwhile Lord Blankfein is being grilled in the theatre of the absurd. “We did not bet against our clients.” Riiight, Lloyd, tell us another. While Hank Paulson was their CEO they were most certainly betting against their own clients, they were even throwing parties after successfully offloading their crap onto unsuspecting clients.

And the theatre is also occurring over “financial reform.” I am definitely skeptical that anything meaningful will come of that. Even if meaningful financial reform comes now, it is too late to stop the progression of impossible math, a function of our monetary system and the reason that monetary reform is what’s needed to actually heal our economy permanently.

There were 674 new highs on the NYSE yesterday, an all time record. That’s the type of extreme that will likely precede a pull-back of some kind, watch the number of new highs, once they begin to fall, a pull-back is likely.

Below is a six month chart of the SPX, note the large megaphone that was drawn in quite awhile ago:

The upper trendline has held prices and stopped the advance right on the 1,220 level. That level is also coincident with the 200 week moving average. If that megaphone is in play, we could be very near a pullback that would take prices down to the 1,000 area, that’s a pretty large correction should it occur. It may not be what’s in play, there is only one touch on the lower trendline, but it is the same angle as the upper trendline so it’s a possibility. Megaphones usually have 5 waves, obviously this one has had 3. If it’s in play, 4 would take it down to the bottom, then what’s typical is for a 5th wave to only make it half way back up and then fail. Megaphones are typically price reversal formations although not always. This is just conjecture at this point.

Monday, April 26, 2010

As I type on Monday morning, the DOW and S&P 500 are up and setting new rally highs, the largest uninterrupted rally in recorded market history…

The VIX, however, is up nearly 4%, and Goldman Sachs is down another 3%.

CAT, whose revenues fell 11% from the “bottom” (quarter 1 of 2009), is back nearly at 2007 prices after having its first profitable quarter in the past seven! Price to Earnings ratio? Only 50, that's all. North American sales? DOWN 15% year over year.

This mirrors another manufacturing bellwether, Boeing (BA), who reported revenues down 13% quarter one of this year over the same quarter the year prior. Current P/E of “only” 45!

A buying opportunity that can’t be passed, or an extreme in sentiment and valuation?

I vote the later.

This Friday the Wall Street Journal reported that NYSE 52 week highs reached 634, a high that dates back to 1982. Some (uninformed) market callers say that this is a sign of strength showing great breadth in the market. I say it shows an extreme, one that is almost always seen near major turning points in the market, let’s examine the history.

Below is a 3 year weekly chart of NYSE new highs with the SPX in the background for comparison:

Let’s examine this chart carefully. Note that in late ’07 there was a cluster of 4 events with readings over 300. What followed? One of the greatest stock collapses in history. Note how the peaks in the new highs correlates with tops, certainly not buying opportunities, that’s for certain.

Those extreme readings reversed, the number of new 52 week highs went to near zero and stayed there as the market bottomed.

Now that the market has literally been climbing uninterrupted for over a year, the number of new 52 week highs has hit insane and never before heard of levels. We just experienced our 5th weekly close over the 300 level in the latest cluster, culminating in an extreme just as the markets reach their 200 week averages and their inverted Head & Shoulder targets.

Now let’s examine a chart of new NYSE 52 week lows for comparison. What’s immediately clear is that there is a distinct correlation between peaks in new lows and bottoms, probably one of the best correlations you’ll find. As you move across the chart, you’ll see a spike in the number of new lows at the March ’09 bottom and it has flatlined near zero ever since. This is not a healthy condition, it is an extreme!

It’s true that as the number of new highs tilts strongly in favor of the bulls that it shows a breadth and a desire for the market to rise – the same is true for new lows when a market is moving lower. Extremes, however, show a lopsided flow of money. This lopsided condition reaches a point mathematically when it HAS to reverse! This is due to the fact that as more buyers enter the market, you have more and more money and sentiment bringing buyers in until the last buyers enter… at that point there is no more new money to take prices higher. The opposite is true on the way down.

We are definitely seeing those types of extremes now. However, beware that major turning points take time to develop, so be patient and do not expect instant crash – look at those charts and how long it took for a meaningful and sustained change of direction to occur. It's clear that it takes clusters of extreme reading to turn the entire market direction, while a single high reading can indicate a correction. We've seen a cluster of extreme readings now, haven't we?

I am often asked about Hindenburg Omens. They are triggered when certain market conditions exist AND the number of 52 week highs and lows are BOTH elevated. This happens very rarely and is a good indication that a substantial market decline is about to occur.

In order to trigger another Hindenburg Omen now, it would require that the number of new lows rise to 85 or above while the number of new highs remains above that level as well. It’s not likely to happen until we get an extended decline because stocks now have a long way to travel to get to new lows.

The Hindenburg works because it shows a market that is internally split, some stocks are doing great while others are doing poorly. The most recent example was when housing and construction related stocks were making new lows yet the overall market was continuing to put in new highs into the face of that. Remember the sentiment at the time? The “experts” were saying not to worry while a select few, like myself, were warning that it would affect overall consumer spending and that eventually the rest of the market would follow. It did.

This current “recovery” is not a consumer led recovery, it is a paper led false bounce, one that has bankrupted our nation and introduced new systemic risks that are only added to the prior risks which have not been allowed to clear. Ignore those new highs if you dare, I wouldn’t.